The State of VoIP in the U.S.
The U.S. VoIP market is strong and it's growing. VoIP subscriptions have grown 32% since 2013, increasing at a compound annual growth rate of 10%. And interconnected VoIP subscribers outnumber wireline switched access lines for the first time ever in the FCC's biannual status report.
In December 2016, there were 58 million end-user switched access lines in service and 63 million interconnected VoIP subscriptions, making VoIP 52% of wireline total. It's taken around twenty years since the advent of IP-based phone for VoIP to reach the majority of subscriptions. And there's still growth ahead with tens of millions of customers that can shift from legacy to VoIP solutions.
The FCC uses Form 477 to collect subscribership information from providers of voice telephone services – the incumbent local exchange carriers (ILECs), competitive local exchange carriers (CLECs), interconnected VoIP service, and mobile voice providers. What this doesn't capture is the usage of peer-to-peer applications and embedded communications (e.g., a Slack call between users) that are not interconnected to the PSTN. The aggregated results are published in the Voice Telephone Services: Status as of December 31, 2016 (yes, this is 2016 data published in February 2018, so it's dated and the market has changed already, but it does capture the magnitude and direction of wireline voice).
Here is some of the data I found interesting in the report:
- Growing provider landscape - the report shows that there are 1,691 providers offering fixed phone service, up from 1,644 in previous years. And 62% of those providers offer VoIP, a number that's up 91 in a year. Even with provider M&A and some market exits, the VoIP provider universe grows. And we expect more phone providers, especially as programs like Connect America help bring new ISPs into the market (see CAF II Auction, Rural Broadband and the VoIP Phone Requirement).
- Through the pipe vs OTT - only 13% of VoIP lines are classified as OTT. The FCC splits interconnected VoIP subscriptions between over-the-top (“OTT”)—as defined in Form 477, this means that end user has purchased (or has use of) a broadband connection from an entity that is not affiliated with the VoIP service retailer—and all other interconnected VoIP subscriptions. Notably, a higher portion (21%) of business VoIP subscriptions are classified as OTT, showing the influence of the numerous UCaaS providers (e.g., Vonage Business, Fuse, Ring Central, and hundreds more) and MSPs.
- Cable continues to dominate - For non-OTT VoIP, cable rules as the broadband type with 62% of the subscriptions. Cable MSOs started VoIP early and aggressively over a decade ago so it's not surprising to see that dominance. DSL is still surprisingly strong, and fixed wireless or satellite broadband barely registers.
- VoIP FTTH - VoIP delivered over FTTH/FTTP is up to nearly 7.5 million lines and 14% of the non-OTT total. We expect to see FTTH to grow its share as telcos convert to fiber broadband and with the entrance of municipalities, electric cooperatives, utilities and new overbuilders as ISPs (see Electric Cooperatives Are Lighting Up Broadband in Rural America as an example).
- Competitive providers lead the VoIP evolution - 79% of VoIP lines are from a non-LEC. This is a slightly overstated figure as a voice service affiliate of an ILEC that is operating outside of the ILEC’s traditional service area is counted as non-ILEC. However, as cable providers lead with subscriptions, it's still north of 62%.
- Residential leads - in December 2016, 64 million wireline phone subscriptions (or 53%) were residential and 57 million (or 47%) were business. It's even higher with VoIP subscriptions, where 64% of the total are residential.
- Business VoIP opportunity ahead - Just 40% of all "business and goverment-grade" lines are interconnected VoIP (and most of that via providers other than the ILEC), lagging the overall VoIP market in the U.S. There's a remarkable opportunity for service providers to help the millions of small and medium businesses move off legacy TDM phone services to next-generation VoIP solutions.
So after two decades after the VoIP evolution began, the market is still growing and with 58 million end-user switched access lines there's more addressable market to transform. This growth will continue, especially for small and medium businesses that are still largely stuck on obsolete TDM systems. Frost & Sullivan expects the hosted IP telephony and UCaaS market to more than double in terms of seats from 2017 to 2020.
VoIP remains a lucrative market and service providers are evaluating how they can best execute on this opportunity. For new entrants, entrenched cable MSOs and decades-old telcos, we offer a cloud solution to help service providers newly launch phone or improve and expand the current service portfolio. If you're searching for a solution, schedule a call with our team.